The economic and, more importantly, the housing recovery hinge on job creation. Potential home buyers and renters are hesitant to purchase a home or sign a lease unless their job prospects are solid. If currently employed, workers want assurance that they will remain employed at the same or better pay. Workers looking for employment need a predictable income stream before they or their lender can commit to a house payment. Unemployment is now the leading cause of mortgage delinquencies and foreclosures. Fewer jobs not only drive down demand but also increase the supply of foreclosed homes and put further downward pressure on home prices. An insidious feedback effect worsens foreclosures and jobs as local spending declines, job losses mount, and the cycle continues.
The U.S. economy lost 8.4 million jobs over the two-year period from December 2007 to December 2009. Since then, the U.S. has added roughly 150,000 jobs per month. If sustained, the annual rate of growth would be about 1.4 percent or just barely over the level needed just to stay even with population growth. Some of that gain was temporary Census jobs to count people but private employment advanced at about 100,000 per month over the same period. The total number of U.S. jobs remains more than 5 percent below the peak.
The modest job gains have been boosted by hourly wage increases and longer work weeks. Pay advances have not been large but provide further evidence that firms are pressing more out of current employees rather than hiring new ones, a strategy that cannot continue as the economy expands.
The more important focus for housing is where the jobs are located. Some markets are recovering both because they did not see the depths that the worst places experienced and because the local economies are either diverse enough to have some positive components or the jobs are in sectors showing some revival. These are the markets where housing will also begin to revive sooner rather than later.
The majority of states (31) saw their recent employment trough in December, January, or February (the U.S. trough was December) and for those states, the annualized employment rate of growth has averaged 3.2 percent or more than twice the national rate. Five states have added jobs at an annual rate over 4 percent: Delaware, Kentucky, Maryland, Virginia, and Oklahoma. Other states with healthy job growth in the last half year are Arkansas, West Virginia, and Pennsylvania. If these states maintain their rate of job growth, all eight states will be back to peak within twelve months. Other states likely to be back to their peaks within a year are Texas, Louisiana, Nebraska, and South Dakota. Alaska, North Dakota, and the District of Columbia already have employment levels above pre-2008 peaks.
Similarly, of the 183 larger, metropolitan areas, 55 percent saw a job market turn-around in December, January, or February and have averaged an annualized 2.6 percent growth rate since the trough. Leading the list of job growth markets is D.C. (adding almost 12,000 jobs a month) and its neighbor Baltimore (adding 8,000 jobs a month). Other areas with significant job additions are Philadelphia (6,600 monthly job additions), Pittsburgh (3,000 monthly job additions), Cincinnati (2,800 monthly average), Louisville (2,700 monthly average), and Indianapolis (2,100 monthly average).
Job losses were everywhere, but losses were mild and a return to peak levels is within sight in scattered metro areas across the country. If gains continue at the current rate, these large metro areas will be back to peak within a year: Lubbock and Brownsville, Texas; Myrtle Beach, S.C.; Albany, N.Y.; Cedar Rapids, Iowa; Washington, D.C.; Baltimore; Hartford, Conn.; Louisville, Ky.; Omaha, Neb.; Huntington, W.Va.; Baton Rouge, La.; Ft. Collins, Colo.; and Portland, Maine.
Housing will recover where jobs recover, and the jobs building and supplying material to those homes will multiply the job response.